Insurance law reform – the final countdown?
Christopher Stanton continues his series of articles charting the progress of insurance law reform for the commercial market. There have been some unexpected twists and turns along the way but, finally, we have a Bill making its way through the legislative process. Where have we been, where are we going and what has fallen along the wayside?
The path to reform seldom runs smoothly
Those who have read our previous articles will be familiar with the background. By way of a reminder, here is a brief recap.
The Law Commissions of England and Scotland started work to reform aspects of insurance law stemming from the Marine Insurance Act 1906 nine years ago, in 2005. Provisions in that Act, applied, by analogy, to insurance law across the board, were thought, unsurprisingly, to be outdated and in need of clarification to ensure greater certainty of outcome.
A number of consultations have considered how best to take matters forward. The most recent have
been reviewed in this newsletter.
In 2012, reform efforts produced legislation for consumer aspects of the law – the Consumer Insurance (Disclosure and Representations) Act 2012. However the non-consumer side of things proved more difficult to agree on. It was not until July 2014 that the Insurance Bill was submitted to Parliament for consideration – and even that hadn’t quite worked out as planned!
What is in the Bill?
The major areas dealt with in the Insurance Bill are pre-contract disclosure (introducing the duty of fair presentation), remedies (introducing
a menu of remedies depending on the character of breach) and warranties. Of particular note, the Bill abolishes basis of contract clauses and allows for breaches of warranty to be remedied.
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Supreme Court decision - sale and rent-back
Civil justice reforms - the developing picture
An expert witness’ causation defence - an unfair fight?
professional and financial risks autumn 2014
Welcome to the latest professional and financial risks update from Hill Dickinson.
We hope that you will find this both an informative and enjoyable read.
Our headline feature this edition is the latest in Christopher Stanton’s series on insurance law reform. We explain the latest position reached and look ahead to what will happen next.
I also provide an update on the most recent developments relating to the civil justice reforms, including the Supreme Court’s recent judgment in Coventry -v- Lawrence: do disproportionate additional liabilities constitute a human rights breach?
Two other current Supreme Court cases are also featured: Martin Sutton reviews a decision from the Supreme Court which will impact on a number of cases in which a sale and lease-back has taken place and Christopher Stanton reviews Marley
-v-Rawlings, a case involving a disputed will.
Anthony Willis focuses on a tricky issue relating to expert witnesses now that they no longer benefit from immunity. He also discusses the question of expert witness immunity with our guest, Michael Cohen of the Academy of Experts. We are grateful to Michael for his valuable insight.
For those interested in solicitors’ professional indemnity insurance arrangements, Liz Norris considers the SRA’s recent proposals and how these could impact the market. Richard Creamer reviews recent reform proposals
relevant to health and social care professionals and Melissa Worth reviews one aspect of professional disciplinary proceedings: what happens if the professional cannot attend?
We do hope that this publication will be warmly received. If you would like any more information about the areas covered, would like to discuss the issues featured in more detail or make suggestions for what you would like to see dealt with in future editions, please do not hesitate to get in touch
with any member of our national team.
Best wishes, Ruth Lawrence
Head of Insurance and Professional
& Financial Risks
>>> continued from page 1
- the duty of fair presentation
The Bill includes two alternative tests for what an insured must disclose to a potential insurer at presentation stage.
The first test repeats the existing position, that every material circumstance which
is known, or ought to be known, must be disclosed. The second requires insureds to disclose ‘sufficient information to
put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing’ material
circumstances. Material circumstance is defined as ‘anything that those concerned with the class of insurance and field
of activity in question would generally understand as being something that should be dealt with in a fair presentation of risks of the type in question’.
Whose knowledge is relevant, within the insured business, is also set out to include senior management or the individuals responsible for the insured’s insurance. There can be no turning a blind eye either
- as this is explicitly outlawed in the Bill.
The changes to remedies available to an insurer who considers its policyholder to have breached its duty of fair presentation are significant. Avoidance for failing to disclose all material circumstances is out of the window. Deliberate or reckless breach of the duty of fair presentation
will enable insurers to avoid and refuse to re-pay the premium. Where a breach is neither deliberate nor reckless an insurer will be obliged to act in the way that it would have done but for the breach.
The final cut –
what is not in the Bill?
Those monitoring progress in this area may recall a Bill with a similar name making the rounds in the early part of this year – the Insurance Contracts Bill. That draft legislation was the precursor to the current Bill and included two clauses which were left out of the Insurance Bill:
- Clause 11: relating to terms relevant to a particular description of loss.
- Clause 14: which implied terms about payment allowing policyholders to seek damages from their insurer if claims payments were made late.
These provisions were subject to a last minute consultation, which resulted
in them being removed from the legislation submitted. The intention had been for the whole Bill, including these clauses, to be passed using a special procedure in which legislation passes into law with limited debate. However, these provisions were deemed too controversial for that prcedure, hence their removal. Clause 14 especially could have resulted in a potentially dramatic impact and change to insurance law in this jurisdiction and a move towards the American model in which insurers can be held liable to pay ‘bad faith’ claims. Many in the market will be relieved not to have to deal with this… just yet.
Where does this leave us?
A key aim of reform was to create more certainty of outcome. Codifying the existing law - and explaining the new
law - certainly takes a step towards doing that. However, as with any new legislation, it will undoubtedly take some time for
all in the market to adjust to the new regime. There will be test cases and we can already see where some of these may be focussed, for example on subjective areas such as what an insurer might have done differently if presented with different information at the pre-contract stage, what constitutes a deliberate or reckless breach and what exactly are the things that should be ‘generally understood’
to be dealt with in a fair presentation.
The clear aim is for this legislation to receive Royal Assent before the general election next year. However, this does not mean that we will have new law in force next year. The current draft of the Bill includes provision for the Act to come into force 18 months after Royal Assent
- there will at least be time to prepare.
What also remains unclear is the fate of sections of the Insurance Contracts Bill which were removed. The Law Commissions have announced that these will be re-considered by the Law
Commissions and put before Parliament ‘at the next legislative opportunity’.
We had hoped to soon be able to stop saying this at the end of every article on this topic, but (to a certain extent) it remains a matter of watch this space!
professional and financial risks autumn 2014
Reducing the professional indemnity burden on solicitors through lower financial cover requirements - will it work?
The Solicitors Regulation Authority (SRA) is considering reducing the level of compulsory cover that firms of solicitors must purchase. It had hoped to do so for renewal in October but that deadline has faltered in light of objections from the Legal Services Board. Liz Norris sets out what might happen and examines the arguments for and against the change.
Many solicitors are concerned by the proposed changes. While, given the timing of the announcement, there has been limited opportunity for insurers to consider their position, there does not, at first glance, appear that there will be a vast amount of appetite from insurers to consider offering substantially lower premiums for a lower level of cover.
In any event, it is likely to be the first
tranche of cover, say the first £500,000
such a scenario, this offers no comfort to consumers to recover more than the lower level of cover in the event of a claim. There are, likewise, doubts as to whether many commercial clients, lenders, for example, would be likely to refer work to solicitors holding only a lower level of cover.
Finally, do these proposals envisage that firms would have to consider purchasing top-up cover on an individual basis where, for example, a property is worth in excess of the minimum level or where
taking account of its historical workload. However, if that is the case, how long could it take to feel the benefit of the change… and is there any point?
Contrary to what the SRA may have liked, the proposed changes remain at an embryonic stage and it remains to be seen whether they will be altered or implemented. It remains possible that they could be abandoned altogether. At this stage, what is clear is that
What is proposed?
Earlier this year, the SRA announced that it was looking to embark upon further changes to the way in which it regulates solicitors. It is, in particular, proposing changes to the SRA Indemnity Insurance Rules and the Minimum Terms & Conditions (MTC) to reduce the minimum level of
compulsory cover to £500,000 for any one claim. The current limit is £3 million for a relevant ‘recognised’ or ‘licensed’ body and £2 million otherwise.
The change would be brought about though the introduction of a new ‘Outcome’, within the SRA Code of Conduct (the Code), requiring a firm to assess and purchase an appropriate level of professional indemnity insurance. The SRA is, seemingly, convinced that the proposed changes will deliver benefits for both solicitors and consumers alike.
The SRA had hoped that the changes would come into effect from 1 October 2014, but the Legal Services Board, which has to approve the change,
was not prepared to make a decision based on the current information. It has indicated that further consultation is required and extended its time to make a decision until August 2015.
The SRA considers that there are a number of benefits to both solicitors and consumers alike of the proposed rule change. It says benefits include that solicitors will have the ability to choose a lower level of cover more commensurate to their specific risk profile and that it will promote greater competition within the solicitors’ professional indemnity market by encouraging more insurers to enter the market and, consequently, offer lower
premiums for those firms that do not require such a high level of cover.
From the consumer’s perspective, notwithstanding what the SRA says, it may be difficult to reconcile the
proposed reduction of the level of cover with the overriding principle of solicitors’ professional indemnity insurance, being consumer protection. The SRA justified the proposed change on the basis that many firms will be required to take out additional protection above the existing limits in the event that the specific work dictates or suggests a greater level of cover would be required. Whether firms will do so, however, remains to be seen.
of a £2 million or £3 million limit of indemnity, which costs the most. The cost of cover provided above that first tranche will likely taper off and,
therefore, firms purchasing only a lower level of cover would likely see only limited benefit in terms of premium.
There are also concerns about the ramifications of including professional indemnity insurance as an ‘Outcome’ within the Code. The proposed wording would require a firm to assess and purchase an appropriate level
of professional indemnity insurance, leaving the decision as to what that appropriate level is to that individual firm. Does this then mean that if a firm takes a lower level of cover and subsequently faces a claim in excess of that level, that it will be deemed,
automatically, to have failed to meet the proposed new ‘Outcome’? If so, whilst
a firm may face regulatory sanctions in
a probate has an estate value in excess of the level of cover? Will insurers be prepared to offer this at a reasonable premium? Many firms consider that these changes will serve only to add an additional level of administrative and regulatory burden which would far outweigh any potential reduction in professional indemnity premiums.
Consumers may also have concerns. Solicitors’ professional indemnity insurance is conducted on a ‘claims made’ basis. It is not, therefore, inconceivable that a consumer may have instructed a solicitor who held a minimum level of cover of £2 million at the time of instruction but, by the time that a claim is made, holds only a lower level of cover, quite legitimately. This could conceivably be seen by the regulator as a scenario in which that
firm should have purchased more cover,
firms should continue to actively
risk manage to reduce the impact of existing claims and minimise the risk of future claims. Proactive steps,
such as including a reasonable term in retainer letters limiting financial liability, should be considered. Such active risk management, is, undoubtedly, likely ultimately to remain the most significant factor for insurers in setting the level of premiums.
professional and financial risks autumn 2014
Supreme Court decision on sale and rent-back
The Law Commission’s review of the regulation of health and social care professionals
Richard Creamer considers the reforms proposed earlier this year and reviews the position reached in terms of taking those proposals forward. While a draft Bill was not included in the Queen’s Speech in June 2014 and will not, therefore, form part of the legislative agenda this year, the recommendations remain of interest given that they may well be implemented in the future perhaps by the use of other legal avenues.
A decision by the Supreme Court in Scott -v- Southern Pacific Mortgages Ltd & another, dealing with sale and rent back claims, has just been handed down. It had been eagerly awaited by lenders and tenants
alike, following the hearing that took place in March 2014. There are a significant number of similar claims that have been stayed pending the decision in Scott and the decision will therefore have significant consequences that will be felt across the country. There will be a
knock-on effect for potential negligence claims against solicitors who acted for the homeowners. Martin Sutton explains.
Proposals – the aims
Earlier this year, the three Law Commissions of the UK published a long awaited final report and draft Bill dealing with reforms to the regulation of health and (in England only) social care professionals. The report represented a major milestone in the legal landscape and proposed the largest ever reform of healthcare regulation.
Recommendations provided for a new single UK-wide legal regulatory framework for all health and social care professionals, with the aim of replacing out-dated and inflexible decision-making processes with a clear and consistent legal framework, enabling regulators to uphold their duty to protect the public. Proposals focus on the regulation of individual professionals,
The recommendations are not currently being taken forward via legislation,
but there has been interest from some regulatory bodies in implementing them by other means and/or in pressing for the proposals to be implemented. It may be that a future government will pick up where this one has left off and enact a form of the proposed legislation.
The General Dental Council is currently pursuing a section 60 order to amend some of its fitness to practise procedures in line with the draft Bill.
The General Chiropractic Council (GCC) has said that it regrets and is disappointed that the draft legislation has not been taken forward. Its chief executive
has commented that the proposals
that the GCC must continue to operate a system which is not as good as it should be.’ The GCC wishes to work with the Department of Health to identify how the ‘much needed’ improvements can be taken forward.
The General Osteopathic Council has indicated that it remains hopeful that the proposals will be relatively uncontroversial and capable of featuring in the next programme of legislative reform. It had hoped that the legislation would help it achieve ‘efficiency savings’.
The Nursing and Midwifery Council believes that neither it, nor the public, can afford to wait for parliamentary time to become available. It describes the failure to include the legislation in this year’s programme as a ‘missed opportunity’ and
The claims arise from sale and rent back transactions that, more often than not, involved elderly homeowners with limited financial resources. As a means of releasing equity from their properties whilst remaining in occupation, homeowners proceeded with a sale
The lenders have been forced to bring possession proceedings against the tenants before enforcing their security.
One such tenant, who has taken her claim all the way to the Supreme Court, is Mrs Scott. In seeking to defend the possession proceedings brought against her, Mrs Scott argued that she had an
In light of this, Mrs Scott - and a significant number of tenants who entered similar transactions – now face eviction from their homes. The tenants’ interests have been found not
to override those of the lenders and it is now likely that many tenants will look to pursue claims against the solicitors who
rather than organisations and systems, to ensure public safety.
Reform: salient points
‘represented an opportunity to deliver a more modern and efficient regulatory system… the decision not to present a Bill to Parliament in this session means
‘serious blow’ and that it will mean that
it has no prospect of meeting its goal of concluding fitness to practice cases within 12 months.
London office welcomes new partner
at an undervalue in return for being
granted a lease allowing them to remain in their property.
The homeowners claim that they were led to believe they were selling their properties to a company, but the properties were actually purchased by directors, employees or individuals
otherwise connected with the company. They had obtained mortgages to fund the purchases.
The purchasers kept the lenders in the dark about the leaseback arrangements. When the purchasers failed to keep up the mortgage repayments, the lenders sought to enforce their security only
to find the properties occupied by the tenants - often under leases for life.
equitable interest in the property that
was binding on the lender at the time the contract for sale completed. A key issue the Supreme Court has considered is whether the sale and leaseback
was one transaction or two separate transactions - and whether the lender obtained a charge over a property that was already subject to a lease.
Decision and implications
In November 2010, the High Court found against Mrs Scott and other tenants who had joined together to defend the possession claims against them. It held that there was no legal defence to the lenders’ claims for possession. In January 2012, the Court of Appeal upheld that decision. The Supreme Court has agreed with the Court of Appeal.
acted for them in the transactions.
Judges hearing the previous appeal expressed great sympathy for
the tenants. The Supreme Court acknowledged that its decision produced a harsh result but, unfortunately for the tenants, this sympathy did not influence the court to find in their favour.
The draft Bill provided a single statutory framework for all regulatory bodies.
Regulators would be given powers to make rules not subject to approval by government or any parliamentary procedure.
The formal role of the Privy Council in relation to health and social care professionals’ regulation would be removed entirely.
The Government would be given powers to notify and then give directions to a regulator, or the Professional Standards Authority, if it has failed or is likely to fail to perform any of its statutory functions. If the body fails to comply with any direction given, the Government would be able to give effect to the direction itself.
In relation to fitness to practise, the Law Commissions’ recommendation was for the existing legal framework to be consolidated and rationalised and for a single list of statutory grounds of impaired fitness to practise to apply across the regulators.
The previous ‘misconduct’ ground for impaired fitness to practise was revised to provide greater clarity and, in particular, to demarcate the boundaries between deficient performance and misconduct. Instead of ‘misconduct’, the two new recommended grounds were ‘disgraceful misconduct’ and a ‘deficient professional performance’.
For full details of the proposals, please visit http://www.hilldickinson.com/publications/ health/2014/april/the_law_commission%e2%80%99s_review_of.aspx.
Hill Dickinson is delighted to welcome Janet McWhinney who has joined
the professional and financial risks team in London.
Janet has extensive experience in clinical negligence claims and regulatory/ disciplinary matters for healthcare professionals. She acts for doctors, nurses, dentists and their defence organisations. Janet has practised exclusively in healthcare litigation since 1999, having been called to the bar in 1997, and qualified as a solicitor in 2000.
The members of the team in London are particularly pleased that Janet has joined them, seeing her experience and skills as an important addition to the development and growth of the regulatory and medical negligence practice in London.
professional and financial risks autumn 2014
Civil justice reforms -
the developing picture
The Lord Justice Jackson-inspired civil justice reforms have provided a backdrop to the last few years of litigation, keeping all involved on their toes. What would happen next? When would it happen? What would it all mean in practice? Will the reforms ever end? With yet further comment from the Court of Appeal since our last newsletter, and a potentially landscape changing development from the Supreme Court, Ruth Lawrence reviews the current position.
Complying with deadlines – have we reached settled law?
The big news earlier this year on relief from sanctions was the case of
Mitchell -v- News Group Newspapers Ltd. The Court of Appeal gave guidance in that case at the end of 2013 - the first half of 2014 saw the lower courts attempting to apply it and a lot of inconsistency crept in. Fears were raised by legal representatives and their insurers, that being unable to predict the outcome of an application for relief could lead to professional negligence claims – either for failing to comply, or capitulating too easily to an opponent’s application. Litigation became more adversarial.
Following complaints, the Court of Appeal was asked to look again at the issue, leading to judgment in July 2014, in three conjoined cases – Denton, Decadent and Utilise. The decision reviewed what had happened on the ground since Mitchell and offered further guidance on how applications for relief from sanctions should be approached. These three cases were illustrative of the kind of decisions made in the wake of Mitchell. In one (Denton), the decision was seen as overly lenient and, in the others, excessively harsh. The judgment starts with the news that the court considered that Mitchell had been misunderstood and misapplied
by some courts and was in need of clarification and amplification. This made the headlines.
In the paragraphs that followed, new guiding principles were set out and court users were warned of severe consequences for not acting sensibly in the face of an opponent’s application for relief, to include costs sanctions. The
new buffer direction in CPR 3.8 should be used to agree reasonable extensions and contested applications for relief should now be the exception rather than the rule.
Please visit the publications section of hilldickinson.com for a more detailed discussion, authored by our head of costs, Paul Edwards.
Given that Denton was handed down just before the summer break, and, of course, that its aim was to limit litigation, we are yet to see many reported cases emerging. However, one case in the High Court has demonstrated what seems
to be an eminently sensible approach: a solicitor had omitted to file and serve a notice of funding until four months after proceedings were issued. The application for relief was uncontested and the solicitor at fault was able to demonstrate that no harm had been done by the omission given that all the relevant details had
been included in a letter sent before the proceedings were issued. Dealing shortly
with the application, the judge accepted that the breach had been neither serious nor practically significant. The breach was not deliberate and had been promptly rectified once appreciated – ‘the impact of the oversight on the efficient and proportionate conduct of litigation was negligible’.
At the other end of the spectrum, our own experience has shown where the line on relief may reasonably be drawn. A claimant failed to attend a trial because
her solicitor had forgotten to tell her when it was. The judge refused to reschedule. She had four fast track trials to choose from that day and had decided to schedule this one, because she had been told that it was definitely going ahead. While conscious of the need to limit satellite litigation, it would be a waste of court time to adjourn. There was a clear claim against the solicitors. This, once again, seems like an appropriate approach
- but is, of course, a warning that strict decisions will be made where necessary and solicitors and their insurers must be wary of resultant claims.
As it stands, therefore, it seems that ‘calm’ has descended in this area. However, how long that calm will last is an open question for the next few months.
Additional liabilities – the accepted position turned on its head?
In a more recent twist, just before summer recess, the Supreme Court has made waves by giving credence to an argument that disproportionate success fees and after the event insurance premiums
could breach Article 6 of the European Convention on Human Rights – the right to a fair trial. Complaints about the disproportionate costs of litigation are not new - however the president of the
Supreme Court, Lord Neuberger, has now seized the mantle in seemingly dramatic fashion, suggesting that the Government could, ultimately, be liable to pay damages.
In Coventry -v- Lawrence, a nuisance case involving two private citizens claiming against a relatively small business, the total costs bill was in excess of £1 million, including a success fee and after the event insurance premium totalling over
£600,000. In contrast, while successful, only minimal damages in the region of
£20,000 were awarded to the claimants, together with injunctive relief.
Giving judgment, the court has left open the possibility that such high additional liabilities could constitute a breach of Article 6, given that they could represent a bar to access to justice. If that is the case, the relevant legislation could be declared incompatible and, taken to its
logical extreme, those who have had their rights infringed, not only in this case but in others too, could claim damages from the Government.
Of course, success fees and additional liabilities are no longer recoverable from the losing party, following on from the enactment of the Legal Aid, Sentencing and Punishment of Offenders Act
2012. However, any ruling could allow parties whose rights have already been infringed to make a claim. There is a way to go yet before this scenario might play out – interested parties, including the Government, have been given the opportunity to make submissions and the point may be remitted to the Court of Appeal for consideration. A further hearing has been listed by the Supreme Court in February 2015. However, it is an interesting point, and one which could
have wide reaching consequences for the future.
an opportunity to grow
Few of us thought that the reforms would have an immediate impact and, in many areas, it remains too early to tell whether the changes have had the effect that Lord Justice Jackson hoped: cheaper, more efficient litigation. Many cases that we are dealing with, in professional and financial risks, are still funded under the old rules, so we still see huge additional liabilities
being claimed. It will take some time for these to filter through.
That said, costs management, especially in the Technology and Construction Court, is now an accepted feature and is allowing us to advise our clients
more accurately of the risks they face in continuing with litigation. In relation to deadline compliance, as you can see
from the summary above, while we may have thought we knew where we were – a tough approach in every case – the fair application of that approach is taking a while to settle. Perhaps that is inevitable.
We remain therefore, in a period of change and adjustment. That does not, however, need to be unsettling. Rather, it offers
the opportunity to continually review and assess all of our practices in order to strive to achieve the best outcomes all round.
professional and financial risks autumn 2014
Making a mockery?
Hill Dickinson’s mock mediations proving popular
Over the course of the last year, members of the Hill Dickinson professional and financial risks team have been honing their acting skills by taking part in a ‘nationwide tour’ of mock mediations, in association with key broker client Griffiths & Armour.
professional and financial risks autumn 2014
An expert witness’ causation defence
- an unfair fight?
The implications of acting as an expert witness changed overnight when the Supreme Court abolished expert witness immunity in Jones -v- Kaney. Anthony Willis examines one of the difficulties that experts may now have in defending a claim: refuting causation. Do expert witnesses face an unfair fight and what can they do to protect themselves?
Questions for the expert
As chairman emeritus of The Academy of Experts (TAE), director of The ADR Centre London and a qualified mediator and chartered arbitrator, Michael Cohen is deeply involved in the world of dispute
When immunity was abolished, some commentators argued that this would impact on an expert’s objectivity and duty to the court. Others said that it was important for experts to be liable if they breached professionals’ normal standard of care. Some argued both points and that the decision should have been taken by Parliament after wider, considered thought. The eventual removal of expert immunity was probably inevitable, especially following the removal of barrister immunity in Hall -v- Simons in 2000. The problem for experts is that the case in which it happened involved an extreme set of facts in which liability and causation of loss were clear; the expert had signed a joint statement without properly considering the content. In the context of a more borderline set of facts, the court’s isolated decision in Jones -v- Kaney, has thrown up some potentially difficult questions.
Imagine this different set of facts – the expert finishes giving evidence at trial in a highly technical dispute. The judge relies heavily on the expert evidence, but prefers the other side’s expert. The client is dissatisfied and says that it only
proceeded to trial, rather than settling the case, because of the supportive expert evidence. The client alleges that it has lost hundreds of thousands of pounds and brings a claim against the expert to recover this. How does the expert defend the claim? How might he show that something else caused the client’s loss? Perhaps the advice from the solicitor,
or because, regardless of the solicitor’s advice, the client wanted his ‘day in court’?
The privilege trap
To demonstrate what else may have contributed to the decision to go to trial, the expert would need to see the solicitor’s advice and the client’s
instructions. However, communications passing between a client and solicitor are privileged. The expert will not automatically be entitled to see these
documents, even when being sued by the client - unless the privilege is waived.
The expert could ask the claimant for copies of the advice and instructions as part of disclosure. If these are beneficial to the claimant’s case, it is possible that privilege would be waived by the claimant and the documents provided. At least
the expert can then assess the merits of the case and either reach an appropriate settlement, or obtain costs protection, with a well-pitched settlement offer.
Conversely, if the claimant refuses to waive privilege and to provide the documents, then the expert might assume that this is because the documents reveal that the claimant did not rely, solely or at all, on the expert evidence. However, to prove this, the expert would need to actually have the documents. The only option would
be to ask the court for a declaration of implied waiver of privilege and an order for specific disclosure. Would the court grant this?
Implied waiver of privilege
In Lillicrap -v- Nalder & Son, the court held that a party suing its former solicitor impliedly waives privilege. Further, in Paragon Finance Plc -v- Freshfields,
the court held that, by bringing the confidential relationship with its former solicitor before the court, the claimant had impliedly waived privilege.
However, aside from the former solicitor, courts have otherwise proven reluctant to ‘pierce the privilege veil’. In Nederlandse Reassurantie Groep Holding NV -v- Bacon
& Woodrow (No.1), where an accountant was being sued for tax advice on a corporate transaction, the court rejected an argument that suing non-legal advisors could impliedly waive privilege, despite acknowledging that the privileged documents requested were linked to causation. The accountant argued that the solicitor would also have provided advice on the issue, that this advice was relevant to causation, and that the confidential relationship was therefore before the court. The argument was rejected by
the court on the basis that the claimant was not itself bringing the confidential relationship with the solicitor before the court simply by virtue of potential causation arguments in defence of the
claim – privilege is paramount and must be protected.
No court has yet been asked whether privilege is impliedly waived in a claim against an expert and so the question remains open. In the scenario we have discussed here, the solicitor is not being sued and therefore the confidential relationship is not being brought before the court. Yet this leaves the expert in a very difficult position. It is arguable that the expert was a member of the ‘litigation team’ and that this relationship is before the court, but based on current authorities this argument may not be successful.
The only choice that the expert has is to put the claimant to proof on causation. The difficulty with this defence is that, on the balance of probabilities, and without evidence demonstrating otherwise,
the claimant will probably be able to demonstrate at least some reliance on the expert evidence. While a net contribution
clause may help limit the expert’s liability, without the privileged documents it would be difficult for the expert to prove the other contributory factors and the expert may therefore be held solely liable for the claimant’s loss.
Given the potential unfairness of this situation, it must only be a matter of time before the courts will be asked to decide this point. From the expert’s perspective, a positive decision on this point is needed.
While the policy behind privilege is that a client should feel able to be open with their solicitor without fear of recourse,
this must be weighed against the need for the court to have all the evidence before it to determine the issue of liability and administer justice. A negative decision could leave experts facing an unfair fight and the ramifications of this could be far reaching. This may have an effect on the price and availability of insurance, cost
of instructing an expert witness and, ultimately, the willingness of experts to accept instructions.
However, it is not all doom and gloom. There are protective steps that expert witnesses could take while a decision is awaited from the court. These include updating standard terms and conditions to incorporate an express waiver of privilege clause should the client bring a claim against the expert. Care would have to be given to ensure that this is enforceable, but this, together with a net contribution clause, may help the expert to limit its liability in future claims. Experts should also remember other good record-keeping practices throughout their instruction so that, in the event that a claim is made, they have their own file clearly documenting their involvement, advice and thought processes throughout the matter.
resolution and expert witness work. He has been responsible for the professional
standards and training of experts and dispute resolvers around the world and is heavily involved in providing a wide range of training to experts. Anthony Willis discusses some
of the issues raised in his article with him.
Do you consider that the removal of expert immunity should have been left to Parliament?
Yes, although not for the reason suggested in the article. I accept that the facts in Jones were extreme, but there will be other extreme examples and whilst accepting the old adage about hard cases make bad law, one cannot effectively legislate
on a graduated scale. I do not believe that the court had the power to abolish the immunity. Abolition is clearly a positive change and that is the responsibility of Parliament. It is not the role of the courts to make law, but to interpret the law.
The court could have argued that previous decisions had not been correct in their reasoning and other distinguishing arguments. It might therefore have found that as a matter of law immunity had been misunderstood and was, for example, properly restricted to the witness box. Instead, without the matter being properly argued, the court saw fit to advocate the proposition and to decide it. A single reference in the seven judgments regretting that The Academy of Experts intervention would have been valuable is hardly sufficient.
Have you seen a response from experts to recent criticism by the courts, either by seeking additional advice or training?
Yes, some ‘cautious’ experts do appear to be seeking more advice and earlier than before. There has been an increased enthusiasm for training by a minority of experts but, overall, it seems as though the attitude persists that ‘it could not happen to me’. I believe those appointing an expert should satisfy themselves
that training as an expert (as distinct from in the expertise) has been regularly and recently undertaken.
In our experience, experts still do not tend to have sufficient standard terms and conditions. Has there been any increase in the number of experts seeking advice in relation to terms and conditions?
I am surprised that any serious expert does not have standard terms for his expert work. The regular problem is that terms are not always used. When a problem arises the reason given for not having agreed terms formally is usually that the instructor was in a hurry and the case was too urgent to delay while terms were agreed. That said, I have not seen any real increase in those seeking advice prior to a problem occurring.
professional and financial risks autumn 2014
Disciplinary focus – asking for a hearing to be adjourned
Melissa Worth considers a particular issue in professional disciplinary proceedings, highlighted by some recent case law, what to do if
the professional cannot attend a hearing. How do the courts and tribunals approach this issue? How much sympathy can you expect?
For any professional, being the subject of disciplinary proceedings will be
an extremely worrying and stressful experience. Faced with the possibility of losing their livelihood, most professionals will take every step to ensure that they are present at their disciplinary hearing to defend their case.
However, it is quite possible that a professional with every intention to attend the proceedings may be presented with circumstances beyond their control, which prevent them from doing so.
Less commonly, there are sometimes instances of those subject to disciplinary proceedings attempting to avoid or delay attendance on somewhat dubious
grounds. How are both scenarios be dealt with consistently and justly?
Norton -v- Bar Standards Board: a recent example
Mr Norton had been investigated by the Bar Standards Board (BSB), which
doubted claims that he had made about his education and criminal convictions.
He was charged with four offences of professional misconduct and a disciplinary hearing was listed on 7 February 2014.
Mr Norton was told about the hearing by post and email on 4 December 2013. Two months later, on 4 February, he emailed the BSB saying that he had only just received the email about the hearing and that he had been unaware previously that it was due to commence.
The BSB responded to Mr Norton, telling him how to apply for an adjournment. By 6 February, he had not done so and the BSB therefore emailed Mr Norton
to ask whether he intended to. After further emails, Mr Norton submitted his application on the day before the hearing. His application grounds were:
- he had an appointment in Derbyshire at 9.30am;
- he was unable to arrange suitable childcare;
- the train fare would be ‘highly excessive’ at peak times;
- he had only heard about the proceedings on 3 or 4 February; and
- there were ‘minimal’ adverse consequences of granting the adjournment because there had been no previous adjournment.
The tribunal noted that the application was based on the assertion that the defendant had only become aware of the proceedings on 4 February. However, the panel also concluded that it was apparent from Mr Norton’s subsequent correspondence that he had received papers detailing the hearing date on 4 December 2013.
The tribunal refused to adjourn. It based its decision on the public interest for matters to be dealt with without undue delay. Mr Norton had not explained the nature of
his intended defence, nor the evidence he would rely on in support. It was therefore doubtful that adjournment would affect the eventual outcome or that it would be inappropriate to grant one. The hearing proceeded in Mr Norton’s absence and he was disbarred. Mr Norton appealed.
The law on adjournments in disciplinary proceedings is derived from the criminal case of R -v- Jones (2002). The
consequences of disciplinary proceedings are so severe as to justify application of this criterion. Decisions involving other professions’ disciplinary bodies, including vets, pharmacists and nurses, have followed suit.
The court in Jones stated that ‘[…] the discretion to commence a trial in the absence of a defendant should be exercised with the upmost care and
caution’. In deciding whether to agree to adjourn, fairness to the defence is of prime importance but fairness to the prosecution must also be taken into account.
All the circumstances must be considered, including (of relevance to disciplinary proceedings):
- nature and circumstances of the defendant’s absence – whether it was deliberate and whether it could be interpreted as a waiver of the right to appear;
- length of adjournment;
- whether the defendant is represented, wants to be represented, or has waived the right to representation;
- whether any legal representative can receive instructions from the defendant despite his absence and is able to present a defence;
- extent of disadvantage to the defendant of not being able to give their account;
- risk of an improper conclusion in the defendant’s absence;
- general public interest and that of the witnesses and victims, of a hearing within a reasonable time of events; and
- effect of delay on witness memories.
Norton – what happened next?
Mr Norton appealed the BSB’s decision arguing that it had not followed the test outlined in Jones correctly. His arguments were successful. Jones had not, in fact, been drawn to the tribunal’s attention with submissions made to the members giving them the impression that the tribunal’s discretion to proceed in Mr Norton’s absence was general or unfettered and that prejudice was not a relevant issue. Prejudice was described as ‘irrelevant’
and the tribunal was not reminded that fairness to Mr Norton, including
disadvantage to him from proceeding in his absence, needed to be considered. It was also pointed out that the tribunal’s procedure had not at any stage obliged Mr Norton to indicate whether he intended to defend the charges.
The tribunal’s decision was quashed and the case remitted for a rehearing before a fresh tribunal.
When making an application for an adjournment, a professional subject to disciplinary proceedings can expect the disciplinary tribunal to consider the
application with reference to each of the factors set out in Jones. If the tribunal fails to do so properly, there may be grounds for appeal. That said, a professional seeking an adjournment must still proceed with caution – attendance at a disciplinary hearing must always be considered as a matter of priority.
professional and financial risks autumn 2014
– an insurer’s liability for costs
The recent Supreme Court decision in Marley -v- Rawlings highlights how insurers may be liable for costs of litigation arising from the negligence of their insured… even if they weren’t a party to proceedings.
A solicitor had been retained to prepare the wills of a married couple, but, in error, gave each spouse the wrong will to sign. Probate was subsequently refused and the named beneficiary appealed to the Supreme Court,
challenged by the would-be beneficiaries. The Supreme Court concluded that the wills were valid.
The appellant sought recovery of his costs from the respondents in accordance with the general rule of hostile litigation. The respondents contended that the costs of all parties should be paid out of the estate as is usual when a will is reasonably challenged. In the alternative, they contended that the solicitor (backed by his insurers) should be ordered to pay all costs.
Non-party costs order
The Supreme Court took a pragmatic view. While unsuccessful, the respondents had acted reasonably and it would be unfair to order them to pay costs. Similarly, the appellant had succeeded and so it would be unfair to order that the costs be covered by the modest estate.
The court concluded that the entire litigation was a result of the solicitor’s error. The appellant would have a claim against the solicitor who would in turn claim from their insurers, to reconstitute the estate for any losses as a result of their error. The court found that the solicitor had ‘no defence whatsoever’ to a damages claim from the appellant, and that this was a
‘particularly strong case for holding a third party liable’ for costs. The court exercised its discretion under section 51 of the Senior Courts Act 1981 and made a non-party costs order directly against the solicitor’s insurer. The court felt that this decision was justified on the basis that the insurer had agreed to underwrite the appellant’s costs and was therefore in the position of
third-party funder. In addition, when the appellant had intimated a claim against the solicitor, the insurers had required that he challenge the will first by way of mitigation.
Insurers need to be aware of the implications of this decision and their vulnerability to non-party costs orders. Insurers will need to keep abreast of any litigation arising from potential negligence of their insured, and have regard to the implications of their own actions in dealing with notifications. Insurers should carry out a careful assessment of the claim and consider appropriate early offers in order to mitigate their potential liability.
The decision that the insurers pay the costs was arguably the appropriate and proportionate one in the circumstances. However, the court’s finding that the solicitor had no defence to a claim for negligence is of concern. The solicitor’s negligence was not the focus of the litigation and the solicitor had no opportunity to submit a defence or raise issues of evidence or causation.
If you have any queries about matters raised, please contact:
+44 (0)151 600 8266
+44 (0)151 600 8332
+44 (0)207 280 9263
About Hill Dickinson
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